Bond Market Update

Data Recon

• U.S. Treasuries are holding at their best levels of the morning as the flight to safety amid growing concerns surrounding AI stocks outweighs the release of a much hotter than expected PPI report for September.
• The Producer Price Index for final demand increased 1.3% month-over-month in September (Briefing.com consensus: 0.5%) following a 0.5% increase in August. The September increase was the largest increase since March 2022 and left the index up 6.3% year-over-year versus 5.6% in August. The index for final demand, less food and energy, rose 0.7% (Brieifng.com consensus: 0.3%) following a 0.2% increase in August. The September increase left the index up 5.0% year-over-year versus 4.8% in August.
  • The key takeaway from the report is the accelerated pace of inflation at the wholesale level. That will be looked at by many as a setup for ongoing pass-through price pressures for the consumer.
• Retail Sales jumped 0.8% month-over-month in September (Briefing.com consensus: 0.3%) following an upwardly revised 1.3% (from 1.2%) in August. Excluding autos, retail sales rose 0.9% (Briefing.com consensus 0.3%) after increasing 1.4% in August.
  • The key takeaway from the report is that there was continued strength across many discretionary spending categories that wasn't just driven by higher prices. Spending at food services and drinking places, for instance, was up 1.1% after increasing 1.4% in August.
• Initial claims for the week ending October 10 increased by 1,000 to 199,000 (Briefing.com consensus: 200,000). Continuing jobless claims for the week ending October 3 decreased by 4,000 to 1.710 million.
  • The key takeaway from the report continues to be that it signals low layoff activity, which is a reflection of a solid demand environment.
• The October Philadelphia Fed Index dropped to 20.9 (Briefing.com consensus: 29.0) from 37.8.
  • The dividing line between expansion and contraction is 0.0, so this report denotes a slowdown in the pace of expansion in October.
• The October Empire State Manufacturing Survey increased to 25.5 (Briefing.com consensus: 7.0) from 7.6 in September.
  • The dividing line between expansion and contraction is 0.0, so this report denotes an acceleration in the pace of expansion in October.
• Yield Check:
  • 2-yr: -8 bps to 4.72%
  • 3-yr: -10 bps to 4.81%
  • 5-yr: -12 bps to 4.87%
  • 10-yr: -14 bps to 5.05%
  • 30-yr: -14 bps to 5.39%